New Tax Rules: Whether you are an NRI or a resident, keep these income tax rules in mind while buying a property

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New Tax Rules:If you have purchased property worth ₹ 50 lakh or more (excluding agricultural land) from a resident individual and have not deducted TDS, then you can be considered a ‘defaulter’ i.e. a defaulting taxpayer. The Income Tax Department has issued a new information brochure in this regard, which explains the important things for taxpayers.

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What does section 194-IA say?

• When a person or an entity purchases property from a resident individual, it is necessary to deduct TDS.
• This rule does not apply to agricultural land.

Relief on property up to ₹ 50 lakh

If both the property price and stamp duty value are less than ₹50 lakh, then TDS is not required to be deducted.

When to deduct TDS?

TDS shall be deducted on the date of whichever event occurs earlier:

1. When money is transferred to seller’s account
2. or when payment is made—whether by cash, cheque, draft or other mode

Also applicable on NRI taxpayers

This rule also applies to non-resident taxpayers (NRIs). If you do not follow the rules, you may be considered an ‘assessee in default’ or in some cases, even a tax evader.

Important changes regarding TDS in section 194-IA from April 1, 2025, know the new rule

The rules related to tax deduction (TDS) in real estate transactions have been changed. The existing and new rules related to TDS under section 194-IA of the Income Tax Act are as follows:

• 1% TDS will be deducted on the purchase price or stamp duty value, whichever is higher.
• If the seller does not provide PAN or Aadhaar, the rate of TDS will be 20% (under section 206AA).
• The rule of ‘higher TDS rate for non-filers’ under section 206AB will not apply to section 194-IA from April 1, 2025.
• If PAN and Aadhaar are not linked, 20% TDS will be deducted under 206AA.
• If the seller is an NRI, TDS will be deducted under section 195 and not 194-IA.

This process is necessary under section 195 of the Income Tax Act

If an Indian resident buys immovable property from an NRI, then it is necessary to deduct TDS (Tax Deducted at Source) on the entire transaction amount. This provision has been made under Section 195 of the Income Tax Act, 1961.

According to Ankit Jain, partner of Ved Jain & Associates, in this situation, TDS is not deducted only on the capital gain, but on the entire sale consideration i.e. the sale price. This is done so that the tax on this income earned by the NRI in India can be recovered in advance.

If the payment is not taxable then approval has to be taken from AO

Rashi Khanna, Associate Partner, DMD Advocates, explains that if the buyer feels that this payment is not taxable for the NRI, he can apply for it to the Income Tax Officer (AO). Then the payment has to be made as per the order of the AO. If the buyer does not deduct TDS or deducts less TDS, he may have to face interest and penalty under the Income Tax Act. Therefore, it is important to be very careful in such cases.

Tax consultants warn that if the buyer fails to fulfil his obligation to deduct tax, he will be treated as an ‘assessee in default’ under section 201 of the Income Tax Act.
Tax expert Khanna said that in such cases, the buyer may have to pay 1 per cent monthly interest under section 201(1A). Apart from this, he can also be fined under section 271C, which will be equal to the amount of tax that should have been deducted under section 195.

According to Pallav Pradyumna Narang, partner at CNK, NRIs should ensure that the provisions of the Income Tax Act are followed while buying property. When an NRI buys property from a resident Indian and the value of the property exceeds Rs 50 lakh, it is necessary to deduct 1% tax at source (TDS) at the time of payment.

However, if the transaction is taking place between two NRIs and the seller is also an NRI, then in such a case there is no need to deduct tax.

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